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Issues Involved:
The interpretation of section 43B of the Income-tax Act regarding the applicability to unpaid liability towards royalty payment. Summary: The High Court of Madhya Pradesh addressed an income-tax reference u/s 256(1) of the Income-tax Act, 1961, regarding the applicability of section 43B to unpaid royalty liability. The Tribunal had to decide whether the provisions of section 43B were applicable to an unpaid liability towards royalty payment of Rs. 76,956, considering if royalty should be treated as a tax or a payment for goods or services. The Tribunal held that section 43B disallowed only tax and duty, not payments for services or goods like royalty. It explained that tax or duty is a compulsory extraction of money by public authority, while royalty involves a quid pro quo between the payer and the authority. Referring to legal precedents, the Tribunal concluded that royalty is a contractual payment for goods acquired, not a tax. Citing the Supreme Court's decisions in India Cement Ltd. v. State of Tamil Nadu and State of M. P. v. Mahalaxmi Fabric Mills Ltd., the High Court determined that royalty is considered a tax, not a payment for goods or services. The Court emphasized that royalty on mineral rights is a payment for the use of land, not a tax on land. Therefore, the Tribunal's decision was deemed incorrect, and the reference was answered in favor of the Revenue.
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